Berkshire To Make $10 Billion Investment In Occidental To Finance Anadarko Bid -- 3rd Update
April 30 2019 - 11:13AM
Dow Jones News
By Nicole Friedman and Bradley Olson
Warren Buffett's Berkshire Hathaway Inc. agreed to inject $10
billion into Occidental Petroleum Corp.'s bid to acquire Anadarko
Petroleum Corp. and fight off Chevron Corp.
Last week, Houston-based Occidental offered to purchase Anadarko
for $38 billion, topping the $33 billion that Chevron agreed to pay
for the company. The two sides are fighting over prized energy
assets in the heart of the U.S. oil boom in West Texas and New
Mexico.
The backing by Berkshire gives Occidental more ammunition to
fight the much-larger Chevron, and it signals that Occidental is
prepared to match or exceed any Chevron counteroffer. Occidental
now appears to be in a leading position to complete the
acquisition, analysts said.
Anadarko said Monday that it was considering Occidental's
offer.
A Chevron spokesman said Tuesday that the company believes its
agreement offers Anadarko the best value and most certainty to
Anadarko shareholders. Chevron's deal entitles it to receive a $1
billion breakup fee if Anadarko walks away.
Under the Berkshire-Occidental deal, which is contingent on the
Occidental completing the Anadarko deal, Berkshire will receive
100,000 shares of preferred stock in Occidental with a coupon of 8%
a year. Including dividends that have already accrued, the return
will be 9% a year.
Berkshire also will get a warrant to buy up to 80 million shares
of Occidental common stock at a price of $62.50 a share. Shares of
Occidental closed Monday at $60.13 and fell 3% to $58.34
Tuesday.
The terms of the Berkshire deal are expensive for Occidental,
which cannot choose to redeem the preferred shares for at least 10
years, but Occidental Chief Executive Vicki Hollub has won a key
ally in the fight for Anadarko.
"We are thrilled to have Berkshire Hathaway's financial support
of this exciting opportunity," Ms. Hollub said in prepared
remarks.
Berkshire has a history of buying preferred shares from
companies that need cash. During and following the financial
crisis, Berkshire acted as a lender of last resort for blue-chip
companies including Goldman Sachs Group Inc., General Electric Co.
and Bank of America Inc.
In addition to financing, Berkshire offers the companies a seal
of approval that can shore up broader shareholder confidence.
Berkshire has struggled in recent years to find ways to invest
its growing cash pile. Berkshire held almost $112 billion in cash
at year-end, and Mr. Buffett said in an annual letter to
shareholders released in February that "prices are sky-high for
businesses possessing decent long-term prospects."
Mr. Buffett is likely to face questions about Berkshire's cash
holdings at the company's annual meeting in Omaha, Neb., on
Saturday. Tens of thousands of shareholders are expected to
attend.
Mr. Buffett didn't immediately respond to a request for
comment.
Berkshire's financing significantly raises the risk for
Occidental, prompting concerns among the oil company's
shareholders.
"If this escalates even further, it's hard to see how the
economics really work out, especially given the leveraged position
that Occidental will find itself in," said William Arnold, a former
Royal Dutch Shell PLC executive and banking official.
Anadarko shares slipped 0.7% Tuesday to $72.39, while Chevron
rose 3.2% to $121.53.
--Micah Maidenberg contributed to this article.
Write to Nicole Friedman at nicole.friedman@wsj.com and Bradley
Olson at Bradley.Olson@wsj.com
(END) Dow Jones Newswires
April 30, 2019 10:58 ET (14:58 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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